Carlson Goes Small Cap

"A popular way to invest in small-cap stocks is via a mutual
fund," says Charles Carlson, editor
of the DRIP Investor. "This provides
the easiest way for investors to take a small amount of money and diversify
across a large number of small-cap stocks."

"Since small-cap stocks
tend to have greater volatility than large-cap stocks, diversifying within the
small-cap sector is very important. If investors want to go the fund route, the

iShares S&P SmallCap 600 Index
(IJR ASE), an
exchange traded fund, is an easy and effective way to own
a broad portfolio of small-cap stocks. The S&P SmallCap 600 index consists of 600 small-company stocks.
Generally speaking small-cap stocks are those with market capitalizations under $1.5
billion.

"Clearly
small-cap stocks have been the place to be over the last five years, especially relative to
large company stocks. To be sure, given the relative outperformance of small
caps in recent years, one would expect that the performance gap between large
companies and small companies will close a bit in 2005, and I expect that to be
the case. Still, having exposure to small company stocks still makes
sense."